Oil, the FED, and economics...

Think oil is expensive now?

Wait until the International Energy Agency comes out with a new study that "significantly reduced its preliminary assessment of the long-term world supply of crude oil".

http://www.nytimes.com/2008/05/23/business/worldbusiness/23oilweb.html?_r=1&hp&oref=slogin#

Their current prediction states that oil output will increase from 87 million barrels per day currently to 130 million barrels per day in 2030. What if their new report states that we'll never get close to 100 million barrels per day - and might be ready for either a longterm plateau or decrease?

There is dumb speculation and smart speculation. Speculators might be pushing up the price of oil - but what if they are doing so based on solid predictions of the future?

Yes, high oil prices suck - but high prices driven by speculation give us a little more time to adjust our way of living to a world where oil is no longer cheap and easy.

I typed that wrong, as you have no doubt figured out.

Google "us oil consumption by year" to find numbers.

here is a link (http://www.eia.doe.gov/emeu/mer/petro.html) to all the data and its broken out by sector. look at 3.7a,b,c,d. i gathered the data and put it all together and here you go.

1986 16,281

1987 16,665

1988 17,283

1989 17,325

1990 16,990

1991 16,714

1992 17,034

1993 17,236

1994 17,718

1995 17,724

1996 18,308

1997 18,620

1998 18,916

1999 19,520

2000 19,700

2001 19,649

2002 19,762

2003 20,034

2004 20,731

2005 20,803

2006 20,587

So its broken down into Resi & commerical, Industrial, Transportation, Electric. If we go 1986 to 2006 using the numbers given which i believe are subject to revision still to some extent. The growth is OVERALL up 26%, resi is flat, commercial is down 32%, Industrial is +25%, Transportation is +37% and electric power is down 55%. Since these numbers susceptible to some huge yearly deviations I also took the average 20 year rolling number. and its goes like this. resi -25%, commercial -37%, industrial +13%, transporation +37%, electric power - 34% and OVERALL is +17%.

Obviously the first step to take is to conserve energy.

Next to increase our renewable sources.

I have read and heard many times we consume about 20 to 21 million barrels a day. We import about 12 million barrels a day of oil. China and India and emerging markets are demanding more oil. That is not just speculation though I agree speculation might be playing a factor too.

We need to get off using oil as we do today. We should increase our nuclear energy from around 20% of the energy we use today to something near what France does. We need a stardard nuclear plant model and to start building.

Save oil for plans and drug companies. Save natural gas for public transportation.

We probably will start to use more coal but that is some nasty stuff.

I think the Fed is doing a good job.

I was looking at a graph and gas since last June has gone from about $55 a barrel up to $135 a barrel. You cannot tell me that is all due to:

1. The dollar going down

2. Supply going down

3. Demand going up

The key is the 4th and 5th

4. Speculators

5. Oil companies

Actually last june the price more like $65 and it had come down from high 70s. Yes speculation has a very small role in all this if thats what you want to hear than ok. But do you really not understand the amount of building going on abroad in places like china and india and how these huge nations demand for oil has just exploded causing the price of oil to go up....

so are you going to tell me that because of china and india demand has doubled over the last year. comon

mix in political instablity where there is oil so there is a premium there too and you have your main factors.

blown away wrote:

so are you going to tell me that because of china and india demand has doubled over the last year. comon

Since when does a doubling of the price mean that demand has doubled?

If there are 100 cars produced every year and in one year 100 people want to buy them, the price is going to be pretty reasonable. Next year, what do you think is going to happen to the price is demand only goes up by 10% such that 110 people now want to buy one of those 100 cars? Will it only increase by 10% as well?

We grew our national debt while we had good economic times. We still carry too high of a trade deficit and our importing 12 million barrels of oil a day isn't helping it. Of course, the dollar's value is not going to be what it once was.

We need to develop an energy policy so we don't have to send our president to get on his knees and beg Saudi Arabia to bring more oil to the market. That is plain pathetic. We are a nation of oil beggers at this point.

the world isn't linear...

while global demand continues to climb and it has done so dramatically in large countries like china and india. oil supply has not and in a lot of instances can not keep up with demand.

Political instability has existed in the regions where there is oil for years so don't give me that line.

What we have heard since the first of the year to justify the increasing price of oil is the following (not an exhaustive list by any means):

1. Terror premium

2. Increased demand in developing nations

3. Refinery outages due to fire

4. Concerns about supply

5. Weak dollar and oil as a hedge

6. Instability in oil producing nations

7. OPEC stating it would not increase production

Now I have a hard time figuring out how the increased demand in developing nationa has driven the cost up since January from the $85-90 range to $135 today. Plus, developing nations are not as rich as the US, so excepting for government subsidies, how can such nations afford the dramatic increases we have seen here?

Speculators (i.e. hedge funds and investment banks) have driven the price up. It is a self fulfilling prophecy when they say they expect $4 gas and whadda know - we do! Price at the station by my work has gone up $.21 since last Thursday. That is not supply and demand when demand is down over the last few months according to the government. Funny, at the same time inventories are down unexpectedly.

I see this as the same bubble we have seen in tech stocks, energy crisis in the west in 2000, housing bubble. A sudden and dramatic run up in price without regard to fundamentals.

The best way to deal with this is to increase the margin needed to hold oil. Right now it is quite low. Bump the margin up and you should see some speculators get out.

I don't doubt that speculation has played a factor. Yesterday, I got a unsolicited newsletter from some wantabe financial guru citing what energy companies stocks to buy. I figure we are proabably getting close to the peak when some Joe down the street is sending out energy stocks recommendations.

But I have don't know what the fundamentals would predict the price of oil should be at this point. I do know that we import too much of it. I know we use too much of it. I know we ought to consume less of it. We should use this time to really think hard about getting serious about a new energy policy that doesn't rely on oil or coal as our main energy source.

Saudi Arabia may no longer have the ability to increase production. They are down from peak levels in 2006 and there is a growing belief that the largest oil field, Ghawar (which accounts for almost half of Saudi Arabia's daily oil production) is in decline.Seems to me that the reason Saudi Arabia won't increase oil production isn't because they believe the market is amply supplied - its because they can't increase production. They would rather the world believe they are playing hard ball than have the world know they no loner have control over supply.

watch it wrote:

We need to develop an energy policy so we don't have to send our president to get on his knees and beg Saudi Arabia to bring more oil to the market. That is plain pathetic. We are a nation of oil beggers at this point.

I have heard that too. In any case, we shouldn't be rely on importing 12 million barrels of oil a day as a way to supply our energy needs.

Uh, it's not complete and utter bs. Admittedly, I was not looking at TOTAL US petroleum demand when I originally wrote that, but notice on the chart below that demand was no greater at the end of the 1990s than it was at the end of the 1970s. Yes, demand has risen since then, but technological advances have limited the rise in demand to a negligible percentage over the last 30 years when you consider total population and economic growth. So, the point is still very much valid. Utterly.

This is not a criticism but rather a suggestion: you (and anyone else with this or similar sentiments) should really read up on microeconomics or take a course in the same. An introductory course doesn't require anything other than a little algebra and logic, and will help illuminate why the below statement is overly simplistic.

blown away wrote:

so are you going to tell me that because of china and india demand has doubled over the last year. comon

I have taken a class in micro and understand the simplicity of the statement but you and I both know that demand has not increased that much in the last year. It may be a 5% world increase maybe a 10% I don't know for sure but either way for it to double prices it would have to be much more than that.

But we are talking about something where we are using near capacity. You cut off supply or increase demand at the highest marginal unit and that is a major difference between that vs some product that is not near capacity.